The Supreme Court commenced oral arguments on Tuesday in an ongoing dispute with far-reaching consequences for thousands of tort victims and hundreds of millions of dollars in proposed settlements spread across numerous cases. The primary case under the lens, Truck Insurance Exchange v. Kaiser Gypsum Co., will scrutinize whether insurers hold a substantial enough stake in bankruptcy plans to contest them.
Insurers in many bankruptcy cases are kept at a distance, barred from challenging a reorganization plan until they are explicitly affected by it. Truck Insurance Exchange, however, having lost appeals at both district and circuit levels, asserts that it should be entitled to object Kaiser Gypsum’s plan, as Truck faces financial liability for thousands of personal injury claimants asserting they contracted asbestos-related illnesses from Kaiser Gypsum’s wallboard manufacturing enterprise.
The outcome of this Supreme Court decision could introduce a new dynamic to the rapidly evolving landscape of mass tort bankruptcies. Some notable mass liability bankruptcies involving organizations like Catholic dioceses and the Boy Scouts of America have previously used bankruptcy to resolve their liabilities through court-approved plans typically funded with the assistance of insurance policies. One of the most publicized mass liability bankruptcies, Purdue Pharma, has also drawn significant attention for its controversial Supreme Court case.
Insurers affirm that they should have the standing to challenge bankruptcy plans as their significant financial stake can help uncover instances of fraud. They argue that insurers, as they are frequently expected to cover the cost of tort claims, have a substantial financial interest in ensuring that they’re not settling fraudulent claims. Consequently, in numerous mass tort cases, insurers have been advocating for more stringent standards for evaluating claims.
Opponents, on the contrary, believe these fraud concerns to be exaggerated. They maintain that granting an insurer the right to object will leave the procedure vulnerable to disruptions from any party negatively impacted by the plan. The final decisions from the Supreme Court for this term could be expected by the end of June.
This case has garnered the attention of and has been covered by Bloomberg Law.